Post Views: 106 Ahead of this month’s meeting of its Monetary Policy Committee (MPC), the Central Bank of Nigerian (CBN) released the personal stateme...
Ahead of this month’s meeting of its Monetary Policy Committee (MPC), the Central Bank of Nigerian (CBN) released the personal statements of members at the 10 voting members, showing the dominant worry over the bloating Non Performing Loan as a ratio of total industry loan for the period.
Many of the members lamented the fact that the NPL ratio rose from 12.45% at the end of June, to 14.7% by August, at a time of rising oil prices at the international market.
Also worrisome, according to Dahiru Balami, a member of the committee is a cursory review of the credit portfolio distribution and NPLs, indicating that oil and gas players alone are responsible for 30.8%; followed afar off by the 12.95% of the manufacturing sector. Government and general commerce accounted for 9.58% and 7.36%, while ‘general’ had 6 .34%.
According to Balami, “credit availability and good administration is supposed to be a good driver of growth in the economy.”
Worse still, he continued, is evidence-based analysis, showing that the oil and gas which “enjoys the most credit is not an important employment generation sector of the economy because oil and gas is capital intensive.
“Ordinarily, the areas which more credit should flow to are sectors such as agriculture, manufacturing, transport and storage, service, mining and quarrying as well as real estate activities. It should be noted that eight sectors recorded increases in credit between August 2017 and August 2018, while 18 sectors recorded decreases in credit.” For him therefore, one critical question Nigerian banks need to answer “is what credit appetite do banks have for giving more credit to the gas and oil sector?
“In Nigeria, the sectors with highest credit concentration are also sectors with high impact on the NPLs.
Between August 2017 and August 2018, for example, he said the Oil and Gas, accounted for 44.67%; General Commerce, 8.31%; General, 8.85%; Power and Energy, 6.95%; and Manufacturing, 6.13%;” among others.
This is why, he recalled, the committee highlighted in its July meeting, “the need for CBN to employ the use of unconventional and innovative monetary policy instrument such as discriminated CRR and introduction of corporate bonds to encourage the advancement of credit to the real sectors of the economy.
“The low CAR and rising level of NPLs increases caution by Nigerian banks in lending to the real sector which is supposed to be the prime driver of the economy.
Besides the NPL ratio, Robert Asogwa, another member, called attention to Capital Adequacy Ratio (CAR) as another financial soundness indicator that evokes new concerns.
CAR, he noted, declined from 12.0% in June to 10.79% in August.
The trend is worrisome, Asogwa continued, “given the expectation that loan losses by the banking industry should be declining at this time, with the exit from recession.”
He agreed that it was not all bad news after all, judging by the growth in total banking industry assets from N33.7tr in July to N34.05tr , even as total Industry credit moved slightly from N15.53tr to N15.76tr.
He equally drew attention to the deterioration of asset quality, despite the improved liquidity in the banking sector as a whole, calling for efforts to avoid provoking any further distress in the banking sector.”
Mrs. Aisha Ahmad, a deputy governor of the CBN and MPC member, also lamented the NPL upsurge in August, compared to the decline in June 2018, amidst moderated return on assets and equity.
“Whilst Bank Staff offered further insights into the rise in NPLs due to the implementation of the new IFRS 9 provisions, which requires significant increases in expected loss provisions, there is clearly a need to further incentivize the banking system to support the required boost in economic activities.
“The rise in NPLs partly reflected in the observed decline in new credit – a concern the CBN has continuously highlighted in view of its implications for real sector growth.”
In his submission, Prof. Felix Adenikinju, spoke on the need for time to enable non-conventional measures including a dynamic CRR to encourage banks lend to the private sector, particular the agricultural and industrial, adopted at the July meeting yield result.
He expressed worry over “the lack of fiscal buffer in the midst of high oil price, the high debt service revenue ratio, and unpredictability in the release of capital votes, the continuous fall in the NSE share index value as portfolio investors’ move out of the economy.
“Furthermore, the reducing level of foreign reserves, due partly to efforts aimed at stabilizing the naira exchange rate, may affect the opportunity to maintain robust foreign reserves at a time of high oil price. It is not by coincidence that external reserves declined from a height of US$47.43bn end- April 2018 to $43.91bn on September 20, 2018.”
He equally noted the cloud of uncertainties that continues to hang over the economy which would require careful maneuvering of the fiscal authorities, such as “the persistent farmers-herders clashes, effects of flooding on agriculture, trade and services, clamour by labour for increase in minimum wage rate, anticipated election spending, release of capital budget in a manner that may affect liquidity in the economy and significant cash grants currently being injected into the economy for economic empowerment.”